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Promises and endogenous reneging costs

Yuval Heller and David Sturrock

Journal of Economic Theory, 2020, vol. 187, issue C

Abstract: We present a novel mechanism that explains how nonenforceable communication about future actions has the capacity to improve efficiency. We explore a two-player partnership game where each player, before choosing a level of effort to exert on a joint project, makes a cheap talk promise to his partner about his own future effort. We allow agents to incur a psychological cost of reneging on their promises. We demonstrate a strong tendency for evolutionary processes to select agents who incur intermediate costs of reneging, and show that these costs induce second-best optimal outcomes.

Keywords: Promises; Strategic complements; Lying costs; Input games; Partnership games (search for similar items in EconPapers)
JEL-codes: C73 D03 D83 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:187:y:2020:i:c:s0022053120300296

DOI: 10.1016/j.jet.2020.105024

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